RadioShack: The Case Of Poor Financial And Entrepreneurial Planning

Alap Naik Desai

RadioShack, once a name ubiquitous with geeks and nerds, has finally bellied-up and filed for bankruptcy protection. How could a company with such deeply entrenched brand association end up in such dire financial turmoil?

Eerily, last year, RadioShack itself openly advertised what went wrong with the franchise as Hulk Hogan and a mob of other nostalgic characters stormed into a RadioShack and ripped it apart, to the refrain, "The '80s called; they want their store back."

During the restructuring process to salvage whatever's left of RadioShack, hedge fund Standard General LP agreed to buy about half of RadioShack's roughly 4,000 stores. The rest will be shuttered in the near future. Interestingly, Standard General too knows how important RadioShack as a brand is and will run about 1,750 of the stores it buys as co-branded shops with wireless carrier Sprint Corp.

Unfortunately, RadioShack current inventory won't have such a lenient future. The plan is essentially headed to a liquidation of sorts. Perhaps in summation, RadioShack realized too late that revenue was falling and cash was drying up.

More recent causes for the downfall of RadioShack could be etched to the millions spent in advertising a brand that was steadfastly being thrown into the slow lane by online retailers. Moreover, RadioShack overhauled its stores to the hilt, instead of aiming to clear its inventories. In essence, RadioShack spent money on superfluous elements with poor to nil money reserves.

However, perhaps the downfall of RadioShack might have been triggered by Salus Capital Partners, which loaned RadioShack a $250 million loan late 2013. The biggest and perhaps the most severe catch: Salus had to sign off if RadioShack wanted to close more than 200 stores a year. Needless to say, RadioShack lost one of its safest and most sound bets to arrest the bleeding of cash.

RadioShack regretted accepting the loan when it tried to shutter a quarter of its stores early last year, to which Salus strongly objected. The financial institution argued that the proposed plan, which involved liquidating the inventory to save RadioShack, won't work. The inability to close stores extinguished all hopes for a thinly drawn the turnaround plan.

A 94-years-old institution, RadioShack pioneered its business based on the rising interest in electronics. However, its cables and plugs are now easily available online. Combined with the seemingly poor financial planning, RadioShack went the same way as SkyMall.

[Image Credit | Outside The Beltway]